203 Liquidator

Liquidator

The winding up of a company’s affairs is undertaken by the liquidator. As the companies legislation governs the manner in which a company is wound up and eventually dissolved, the legislation ensures that the liquidator has the statutory power to perform this function.

The liquidator’s task is to realise the assets of the company and to ensure an orderly distribution of the proceeds arising from realisation to those persons entitled. In order to perform this function the legislation gives to the liquidator certain powers. In addition, the legislation imposes on the liquidator certain duties and obligations which he/she must perform. Failure to perform the duties and obligations properly may render the liquidator liable to civil and criminal sanctions.

When a company is in liquidation, all the powers of the directors cease (section 258). The board of directors is functus officio. The liquidator (who must be a natural person) is then vested with the power to run the company. The term “liquidator” includes the Official Receiver when acting as the liquidator of a corporation (Section 4).

Once an order for winding up is made by the court, the Official Receiver must be appointed the liquidator. Once the Official Receiver is appointed, he/she may summon separate meetings of the company’s creditors and contributories for the purpose of determining whether or not an application should be made to the court for the appointment of a liquidator to act in the place of the Official Receiver. In any case, where a liquidator is not appointed by the court, the Official Receiver must become the liquidator of the company. Where the Official Receiver is appointed the liquidator he/she is described as the “Official Receiver and liquidator” of the company and not by his/her individual name.

Provisional liquidator

Under the Act (Section 231) the court may appoint a provisional liquidator at any time after the presentation of a winding up application and before the making of a winding-up order. The court may also appoint the Official Receiver as the provisional liquidator. The term “Official Receiver” means the Official Assignee appointed under the Bankruptcy Act, Section 4. An Official Receiver may be appointed as a provisional liquidator in order to protect and safeguard company assets. In this respect the provisional liquidator protects the status quo pending the making of the winding-up order.

As the term suggests, the appointment is “provisional” only and it may be that the court will not make an order for the winding up of the company. Consequently, the provisional liquidator should not perform any function (unless the function forms part of the order of appointment) which may prejudice the orderly winding up of the company in the event that an order is made.

A provisional liquidator must notify the Registrar of his/her appointment, resignation or removal, and his/her address or any change in address. The notice must be lodged with the Registrar within 14 days of the event happening (Section 280).

Statement of affairs

Once an order is made or a provisional liquidator appointed, the Official Receiver may require a statement of affairs to be submitted to him/her showing (Section 234(1)):

1. particulars of the company’s assets, debts and liabilities

2. the names and addresses of the company’s creditors

3. the securities held by the creditors respectively and the dates when the security was given

4. further prescribed information or other information which the Official Receiver may require.

The company secretary should note that the persons who may be required to submit the statement of affairs include past or present officers of the company (this would include the company secretary), its promoters (if the company was formed within
a year before the winding-up order), employees and past employees in the year (Section 234(2)).

The statement must be submitted within 14 days after the date of the winding-up order or within such extended time as the Official Receiver, the liquidator or the court may specify (Section 234(3)). The Official Receiver or the liquidator must file a copy with the court and lodge it with the Registrar within seven days after its receipt (Section 234(3)).

Appointment of liquidator

Qualification of liquidator

A person cannot be appointed as liquidator unless he/she has been given his/her prior written consent to act as one (Section 10(4)). A person cannot be a liquidator of a company if he/she is:

(a) not an approved liquidator

(b) indebted to the company for more than RM2,500

(c) an officer of the company, a partner, employer or employee of an officer of the company, a partner or employer of an employee of an officer of the company. A person is deemed to be an officer of a company if he/she is an officer of a related corporation and has within the preceding 24 months been an officer or promoter of the related corporations (Section 10(3))

(d) a bankrupt and has assigned his/her estate for the benefit of his/her creditors or makes an arrangement with his/her creditors under any law relating to bankruptcy

(e) convicted of an offence involving fraud or dishonesty punishable on conviction for three months or more.

Clauses (a) and (c) do not apply to a members’ voluntary winding up. Clauses (a) and (c) are also inapplicable to a creditors’ voluntary winding up, if by a resolution carried by a majority of the creditors at a meeting of which seven days’ notice has been given, it has been determined that the clauses do not apply (Section 10(2)).

Appointment by the Court

In the winding up of a company by the court, the liquidator is appointed by the court. The liquidator must be either the Official Receiver or an approved company auditor (Section 8(3)). If a person other than the Official Receiver is an appointed liquidator, that person must, before acting as liquidator, inform the Registrar of his/her appointment and give security in the prescribed manner to the satisfaction of the Official Receiver. He/she must also give the Official Receiver information and access to the books and documents which are necessary to enable that officer to perform his/her duties (Section 228).

Appointment by the general meeting

In a members’ voluntary winding up the liquidator is appointed by the company in a general meeting. More than one liquidator may be appointed for the purpose of winding up the company’s affairs and distributing its assets (Section 258(1)). If any vacancy occurs in the office of the liquidator, for example by death or resignation, the company may in the general meeting fill the vacancy (Section 258(4)).

A liquidator in a voluntary winding up is not an officer of the court. On the voluntary liquidation of a listed company, no commission or fee shall be paid to a liquidator unless it has been approved by shareholders and the shareholders shall be notified of such amount at least seven days prior to the meeting to discuss this commission or fee (para 7.37 Bursa Malaysia Securities Listing Requirements).

Appointment by creditors

In a creditors’ voluntary winding up the creditors may, at the creditors’ meeting, nominate a person to be the liquidator. If the nominations relate to different persons, the person nominated by the creditors shall be the liquidator. If no person is nominated by the creditors, the person nominated by the company becomes the liquidator.

But, the court may, where different persons are nominated, appoint the person nominated by the company to act as the liquidator or jointly with the person nominated by the creditors.

The court may appoint some other person to be the liquidator instead of the person appointed by the creditors (Section 266).

Notification of appointment

The liquidator must within 14 days after his/her appointment deliver to the Registrar and the Official Receiver a notice of his/her appointment (Section 208).

Effect of appointment of liquidator on powers of directors

Upon the appointment of a liquidator in a members’ voluntary winding up, all powers of the directors cease except if the liquidator or company approves their continuance in a general meeting (Section 258(2)).

Upon the appointment of a liquidator in a creditors’ voluntary winding up, all powers of the directors cease except if the committee of inspection or, if there be no such committee, the creditors approve their continuance (Section 261(4)).

There are no similar statutory provisions for the directors’ powers in a winding up by order of the court. However, the rule is that once there has been an appointment by the court of a liquidator or provisional liquidator, the powers of the directors terminate.

Powers of liquidator

The liquidator, in exercising any of the powers conferred on him/her by virtue of the Act, is subject to the control of the court (Section 277(2)). Any creditor or contributory may apply to the court with respect to any exercise or proposed exercise of any of those powers (Section 279).

The liquidator may apply to the court for the determination of any question arising in the winding up, or to exercise any of the powers which the court may exercise if the company were being wound up by the court (Section 277(2)).

Winding up by the court

In a court winding up, the liquidator has the following powers sanctioned by the court or by the committee of inspection (Section 236):

(1) Power to pay any class of creditors in full.

(2) Power to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company, or whereby the company may be rendered liable.

(3) Power to compromise, on such terms as may be agreed:

(a) all calls and liabilities to calls, all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and

(b) all questions in any way relating to or affecting the assets or the winding up of the company, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect of it.

(4) Power to bring or defend any action or other legal proceeding in the name and on behalf of the company.

(5) Power to carry on with the business of the company so far as may be necessary for its beneficial winding up.

(6) Power to sell any of the company’s property by public auction or private contract with power to transfer the whole of it to any person or to sell the same in parcels.

(7) Power to do all acts and execute, in the name and on behalf of the company, all deeds, receipts and other documents and for that purpose to use, when necessary, the company’s seal.

(8) Power to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his/her estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent, and can be rated with the other separate creditors.

(9) Power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the company, with the same effect with respect to the company’s liability as if the bill or note had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business.

(10) Power to raise on the security of the assets of the company any money requisite.

(11) Power to take out in his/her official name letters of administration to any deceased contributory, and to do so in his/her official name any other act necessary for obtaining payment of any money due from a contributory or his/her estate, which cannot conveniently be done in the name of the company. In all such cases the money due is deemed, for the purpose of enabling the liquidator to take out letters of administration or recover the money, to be due to the liquidator himself/herself.

(12) Power to appoint an agent to do any business which the liquidator is unable to do himself/herself.

(13) Power to do all such other things as may be necessary for winding up the company’s affairs and distributing its assets.

Certain powers and duties of the court may also be delegated to the liquidator. The following matters may be delegated (Section 252):

1. The holding and conducting of meetings to ascertain the wishes of creditors and contributories.

2. The settling of lists of contributories and the rectifying of the register of members where required, and the collecting and applying of assets.

3. The paying, delivery, conveyance, surrender or transfer of money, property, books or papers to the liquidator.

4. The making of calls.

5. The fixing of a time within which debts and claims must be proved.

However, the liquidator must not, without the special leave of the court, rectify the register of members (Section 252). Similarly, the liquidator cannot make any call without either the special leave of the court or the sanction of the liquidation
committee.

To assist the liquidator in performing his/her duties, he/she may apply to the court for directions in relation to any particular matter arising under the winding up (Section 237(3)).

Rule 163 of the Companies (Winding Up) Rules, 1972, provides that the court that ordered the winding up of the company shall have power to hear all pending matters brought by or against the company. The rationale for the said Rule 163 in directing all proceedings regarding a company that is wound up or to be wound up to be heard by the winding-up court is to prevent duplicity of proceedings. This is also because the winding-up file contains all affidavits and other cause papers that had been filed. In other words, the winding-up court has a complete record of the winding-up proceedings and is in the best position to give directions concerning the company that it had ordered to be wound up.

Voluntary winding up

In a voluntary winding up the liquidator may exercise the following powers with the sanction of the committee of inspection (Section 274):

(1) Power to pay any class of creditors in full.

(2) Power to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company, or whereby the company may be rendered liable.

(3) Power to compromise, on such terms as may be agreed:

(a) all calls and liabilities to calls, all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) substituting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and

(b) all questions in any way relating to or affecting the assets or the winding up of the company, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect of it.

The remaining powers do not require sanction:

(4) Power to bring or defend any action or other legal proceeding in the name and on behalf of the company.

(5) Power to carry on the business of the company so far as may be necessary for its beneficial winding up.

(6) Power to sell any of the company’s property by public auction or private contract with power to transfer the whole of it to any person or to sell the same in parcels.

(7) Power to do all acts and execute, in the name and on behalf of the company, all deeds, receipts and other documents and for that purpose to use, when necessary, the company’s seal.

(8) Power to prove, rank and claim in the bankruptcy, insolvency or sequestration of any contributory for any balance against his/her estate, and to receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance, as a separate debt due from the bankrupt or insolvent, and can be rated with the other separate creditors.

(9) Power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the company, with the same effect with respect to the company’s liability as if the bill or note had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business.

(10) Power to raise on the security of the assets of the company any money requisite.

(11) Power to take out in his/her official name letters of administration to any deceased contributory, and to do in his/her official name any other act necessary for obtaining payment of any money due from a contributory or his/her estate which cannot conveniently be done in the name of the company. In all such cases the money due is deemed, for the purpose of enabling the liquidator to take out letters of administration or recover the money, to be due to the liquidator himself/herself.

(12) Power to appoint an agent to do any business which the liquidator is unable to do himself/herself.

(13) Power to do all such other things as may be necessary for winding up the company’s affairs and distributing its assets.

Liquidators of a company in voluntary liquidation who act according to the wishes of a majority of the contributories of the company are not guilty of breaching their fiduciary duties as long as the liquidators’ actions are sanctioned by the majority. Delays in making the necessary distributions and the use of company funds contrary to Section 285 and do not amount to a breach of fiduciary duties.

Disqualification and removal of liquidator

Depending on the circumstances, a liquidator can be made the subject of a disqualification order. They are:

1. Disqualification on conviction of indictable offences.

2. Disqualification for persistent default under the Act.

3. Disqualification for fraud, etc, in winding up.

A liquidator could be made personally liable for company debts if he/she had knowingly carried on the business with intent to defraud creditors of the company (Section 304).

The liquidator also has a role in the prosecution of delinquent officers and members of the company (Section 306). He/she is also obliged to report the matter to the Minister and to furnish certain information or documents as the Minister may require (Section 306(2)).

A liquidator may be removed if it is in the opinion of all those who are interested in the company being liquidated. However, if the applicant seeking to remove the liquidator had not shown that all the contributories and creditors supported his/her application, and there was no cause shown by the applicant warranting the removal of the liquidator, the court will dismiss the applicant’s application to remove the liquidator with costs.

The appointment of a liquidator is personal in nature. The individual liquidators so named are in a quasi-trustee position vis-à-vis the contributories and the firm where the liquidators are from is a separate entity, e.g., not the company’s liquidators.

The court has a duty to protect the liquidator from spurious or vexatious litigation in order to preclude unwarranted and wrongful interference with the windingup process in deciding on whether or not to take commence legal action against liquidators. Parties who make such applications should show sufficient merits and each case shall be evaluated and analysed on its own facts. Mere assertion of breach of fiduciary duty and/or fraud, premised on the allegation that the liquidators acted in conflict of interest, is insufficient.